The Esquire FAQ: Bitcoin Hits Two Billion

UPDATE: Since we published this piece, Bitcoin shot up to $266 today, and then plummeted to $150. This, as you would expect, has occasioned a few more questions.

Hey, didn't you just say this was a bubble?

We did! And a day after we said it, prices are down 40 percent. While this is evidence that the Bitcoin bubble may be bursting, the fact that the economy is still standing after this latest popped bubble proves that the bubble bubble is still bubbling. Which is to say, growing.

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So you're saying buy?

You never learn, do you?

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This week, Bitcoin, the world's largest virtual currency, hit a milestone: $2 billion dollars. That's the total value of all of the Bitcoins in circulation, which is more than double what they were worth last week, and nearly 50 times what they were worth at this time last year. The sudden, meteoric rise has done what just a year ago seemed impossible, thrusting the erstwhile uber-nerdy underground currency into the mainstream. Which means you should probably know what it is. Toward that end, we offer the following.

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What's Bitcoin?

Bitcoin is an alternative currency, that is not sponsored by any government, and which was invented in 2009.

Where is it based?

Nowhere. In the words of its creator, it is "a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."

And why is everyone talking about it all of a sudden?

Because no one can believe how insanely valuable these things have gotten. The U.S. dollar price of a Bitcoin has surged to $230, up from $100 a week ago and less than $5 a year ago. The total value of all the Bitcoins in the world is now over $2 billion.

Oh wait, I remember Bitcoins. You use them to by weed online, right?

Um, yes. But most Bitcoin adherents would be annoyed at the association. They see it as a place for techno-idealists and libertarians to engage in secure, private, legal transactions outside of the financial system and its regulators, a safe haven for people who don't trust banks.

I don't trust banks. But then I also had an uncle who went to jail for making his own money. Is this legal?

Your uncle was a counterfeiter. It is entirely legal to "make your own money" in the United States, but it is illegal to make money that you pass off as "legal tender," issued by the U.S. Treasury. Bitcoin doesn't claim to be legal tender.

Who made it?

An international man of mystery named "Satoshi Nakamoto," but the name is a pseudonym, and he may not even be one guy.

That's reassuring.

Well, as far as anyone can tell, Bitcoin isn't necessarily nefarious. The core of it is a peer-to-peer network of servers that manages the supply of Bitcoins (there are currently 11 million and will never be more than 21 million) and monitors transactions to prevent fraud and double counting, etc. Plus, they're next to impossible to counterfeit.

I can't believe I'm asking this, but should I invest in these things?

You can, and you can also engage in endless arguments with people about whether or not Bitcoins have any more or less intrinsic value than any other currency out there. Just be wary. It's a new market and nobody has really determined how liquid it is, so you might not be able to sell if you really want or need to, plus it is self-regulated by a network of people who you don't know. And it's a bubble, which, as we've seen, will eventually pop and lay waste to everything and everyone within a 6,000 mile radius. But hey, it's your money.